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Deregistered as a Vat vendor? You may be liable for exit Vat.

by , 31 October 2016
Deregistered as a Vat vendor? You may be liable for exit Vat.Dr Martin's a GP and operates from a home-based surgery. He's decided to deregister as a Vat vendor, because his income's R800 000 per annum. Does it mean he'll have to pay exit Vat on his home?

But Dr Martin's facing another challenge because his home surgery consists of 30% of the area of his home, and he's been claiming a home office deduction on it for years. Must he pay exit Vat to SARS?

The answer's yes. If you use part of your home for a Vat-registered business, you have an exit Vat liability! But if it's your private home, or a house you let for residential purposes, you don't have to by exit Vat on it.

Let's look at the specifics of when you'll have to pay exit Vat on your home if you deregister for Vat...

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Two scenarios where you'll have to pay exit Vat

 If you find yourself in a similar situation to Dr Martin, you'll also need to pay exit Vat at these times...

Firstly, even if you operate your business from a private house, and you have claimed a portion of the VAT as relates to your business you'll have to declare exit Vat if you deregister, on the portion you used for the business.  In Dr Martin's case, he'll have to work out VAT on 30% of the lowest of cost or open market value of the property x 14/114. 

Secondly Dr Martin will have to pay VAT over on all assets and stock he holds on hand.

You declare Vat on the lower of the cost, or the current open market value;

Let's look at this example: 

Dr Martin bought the house in 1998 for R342 000, and claimed 30% of the Vat on the purchase price as input tax (30% of R42 000 = R12 600). The market value of the house is now R1 million. In addition, he finds that he owns equipment and some medication whose cost was R150 000 but whose market value is now R75 000.

So Dr Martin now must make 2 Vat calculations:

1.  He must declare exit Vat on his house, but on the lower of the cost or the market value, thus:-

R342 000  x 14/114x 30%                                                                                                R12 600 output tax

2. He must declare Vat on the stock and assets on hand, thus:-

R75 000 x14/114                                                                                                        R9210.52 output tax

 

Total exit Vat payable                                                                                           R21810.52

Note: If he's on the payments (cash) basis of accounting for Vat, he must also declare output tax equal to the tax fraction (14/114) of his collectible debtors.

He should also pay all his creditors (suppliers) so that he can claim the input tax which is claimable only when he pays – if he doesn't, he will lose this input tax once he has deregistered.

Dr Martin has to pay this Vat in his final Vat return.  All of it, at once. 

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